Banks need to raise just €8bn, far below estimates
IRISH banks may have to raise as little as €8bn from financial markets this month, starkly below prevailing fears of a €26bn "fundraising cliff", stockbrokers Davy said yesterday.
But despite stressing the "manageable" nature of the funding outlook, the broker downgraded its outlook for both AIB and Bank of Ireland to "neutral" amid concerns about higher bank guarantee costs.
Fears over September's massive fundraising demands have been mounting all summer as markets weighed the consequences of €26bn worth of term debt maturing this month.
In a lengthy research note, however, Davy's banking analysts describe the concerns as "overblown".
"The market is fixated on a €26bn term funding replacement requirement for Irish banks this September," said Davy. "This ignores fundraisings already carried out this year, mostly in quarter one, before funding markets seized up."
Davy estimates banks have raised about €20bn in term debt already this year, while saying banks' reliance on wholesale market funding was also "shrinking significantly" as banks deleveraged.
"Another thing that's not fully understood is the stock of collateral Irish banks have at their disposal to access central bank borrowing," said Davy's analyst Stephen Lyons, pointing to the €83bn collateral cited in the note.
"This gives the banks needed flexibility to pay back the €26bn using central bank borrowing if necessary, and then look to do term funding as conditions allow."
Davy said Irish banks were particularly likely to look for ECB cover in September given the "crowded market" internationally, as Europe's banks tried to raise as much as €42bn a month for the rest of the year.
"Funding markets may be in better shape after CEBS [the Europe-wide banking stress tests] but weaker names have yet to reap the benefits," Davy added, predicting that Irish banks would not be able to issue more than "5pc to 10pc" of the total European issuance.
Davy also pointed out that the €26bn 'fundraising cliff' figure mooted for Ireland's banks included about €10bn for troubled unquoted banks, like Anglo Irish Bank and Irish Nationwide who had yet to finalise their future strategies.
"Non-quoted players won't look to replace it [their debt] while their futures are getting sorted," said Mr Lyons.
But while Davy believes the fundraising outlook for Ireland's banks is "manageable" and will "normalise" after September, the broker yesterday downgraded its outlook for both AIB and Bank of Ireland to "neutral".
The broker had rated both banks as "outperform" after their August results, but yesterday cited concerns about the bank guarantee scheme as a reason for the downgrade.